Why investors want a big win for the ANC

With South Africans heading to cast their votes this Wednesday, investors will be hoping for a strong win by the ANC so that stability and certainty can return to the market.

Speaking to the City Press, several investors, economists and market analyst explained why a lot of support for the ANC in the May 8 vote is important.

If the ANC gets strong support (around 60%):

There would be a market rally from a second wave of Ramaphoria, and a boost to the rand;

There is a strong mandate to implement policies – policy certainty stimulates growth;

It gives president Cyril Ramaphosa the power to continue his reform agenda and tackle corruption;

Foreign investors would be more keen to put money into the country;

Eskom would be in a better position to reform, which will please ratings agencies.

If there is low support for the party:

It indicates a rise in populism, which is anti-business;

This would lead to more uncertainty, a wobble in the market and a weaker rand;

There will be a need for coalitions, which South Africa has proven to be bad at, yielding more uncertainty;

Ramaphosa’s position is far more precarious, and he could be removed at some point down the line;

Eskom’s restructuring would be clouded with uncertainty, and a ratings downgrade is more likely.

Irrespective of the elections outcomes, the country’s growth prospects will remain subdued for the next few years, as even strongly-supported reform will take time, the analysts said.

An alternative view

Research group Intellidex recently published the results of its investor election survey, where it found that investors and other market stakeholders were less tied up in the outcome of the elections than commentators would have us believe.

For one, the survey results found that there is a large degree of scepticism regarding there being any real level of outcome for the ANC that would give Ramaphosa the mandate for reform.

Among the respondents who did see such a level, it was lower than the 60% value currently being touted.

The general range among investors who believe that a threshold exists for Ramaphosa’s ANC to secure a mandate ranged between 55% and 60% – and the threshold for a market rally also varied greatly, between 55% and 61%.

The survey found that investors and market players are confident in an ANC victory, but not over the 60% level.

According to the survey results, the market sees the ANC securing between 57% to 58% of the national vote, with the DA expected to get around 19% to 22%. The EFF meanwhile ranges between 9% and 12%.

Colin Coleman, head of sub-Saharan Africa at Goldman Sachs Group, said that from a market point of view, an underperformance by the ANC (below 60%) would lead to downward pressure on all asset classes in the country – equities, currency and debt.

“The reverse is also true – if (Ramaphosa) outperforms, there will likely be a rally in the market. Either side of the book-ends, you will see a sharp reaction in the market,” Coleman said.

If there’s a 55% outcome for the ANC, the analyst said the country can expect “more of the same” in terms of what the country has experienced over the last year or two.